Some investors look to copper prices as an indicator of the global economy. If you are one of them, you have good reason to be concerned.
What’s happening: Copper prices hit 16-month lows on Thursday as traders dumped the metal. They dropped more than 11% in two weeks.
“Copper prices are just beginning to explain the fact that global growth is slowing,” Daniel Ghali, director of commodities strategy at TD Securities, told me.
Metal is used in many building materials, including electrical wires and water pipes. This means that it is often seen as a substitute for economic activity, as demand tends to heat up when the economy is expanding and cool down when it is contracting. He is affectionately called “Dr. Copper” among traders because of his alleged talent for prognostication.
Earlier this year, after Russia invaded Ukraine, the price of copper soared, along with other major metals.
Russia accounts for 4% of global copper production and nearly 7% of nickel production, according to S&P Global. Investors were nervous that supply could run out at a time when the economic recovery from the pandemic was picking up, and they began to aggressively accumulate.
Now, as recession fears set in, prices are heading in the opposite direction.
“Once the hoarding push ended, global demand for commodities began to reconnect with global growth,” said Ghali.
The first look at a closely watched economic indicator for June stated that economic activity is falling into a lower gear as food and fuel prices rise.
The Purchasing Managers Index released by S&P Global on Thursday (23) found that private sector production has slowed “strongly” in the United States this month.
“Having enjoyed a mini-boom of returning consumers following the relaxation of pandemic restrictions, many utility companies are now seeing households increasingly struggle with rising cost of living, with producers of non-essential goods seeing a slump. similar in orders,” said Chris. Williamson, chief business economist at S&P Global Market Intelligence.
Businesses were also much more stressed about the outlook as the Federal Reserve aggressively raises interest rates in an attempt to contain price increases.
“Business confidence is now at a level that would normally herald an economic slowdown, increasing the risk of recession,” Williamson said.
In Europe, growth in June fell to a 16-month low, according to the PMI reading for the 19 countries that use the euro.
And China, which has been a crucial engine of global growth, is still struggling with the aftershocks of its Covid-19 lockdowns and the fallout from a slump in the housing market.
The country’s economy showed some signs of improvement in May, but retail sales contracted for the third consecutive month.
What happens next: Growth in China is expected to pick up later this year, and prices for copper and other staple meals should rebound at that point, said Darwei Kung, commodity portfolio manager at DWS. It’s just not clear when that moment will come.
“They’re coming back, it’s just a matter of time,” Kung said.
Meanwhile, prices could fall further as anxiety about the economy persists. “In the medium term, copper prices have more room to fall, especially as we face the barrel of a recession,” said Ghali.
Source: CNN Brasil
I’m James Harper, a highly experienced and accomplished news writer for World Stock Market. I have been writing in the Politics section of the website for over five years, providing readers with up-to-date and insightful information about current events in politics. My work is widely read and respected by many industry professionals as well as laymen.
